Thursday, May 5, 2011
It is Time For Americans To Learn About Their Money
Now that gasoline is above $4 a gallon, I guess this is as good a time as any to talk about oil, the U.S. dollar and the price of gas.
Oil by the barrel is priced in U.S. dollars. Yes, I know oil can be priced in a basket of currencies or even just the Euro, but for the most part, oil is priced around the world in U.S. dollars. If those that sell oil believe that the purchasing power of the U.S. dollar is going down, and that the demand for oil will rise or remain the same, then the price of oil in U.S. dollars will go up. Some people that buy oil have no intention to ever take delivery of the barrels of oil they buy, and they are called speculators. They play the commodity oil for a possible pop in price and then sell their contracts when the price goes up. Speculation in oil like any other commodity can drive the price up or down depending on which way speculators believe the price of a particular commodity is going.
Because of the financial crisis and the economic recession that followed, our central bank the Fed has pursued a monetary policy of easy money, or more correctly they have helped banks with their problems of liquidity. Unfortunately, many banks made loans and gave credit and invested in mortgages that turned to shit. That means they were stuck with investments that had no marketability. The Fed decided to help keep these banks liquid by keeping the cost of borrowing reserves from the Fed low, or near nothing. The Fed also said they would buy the banks' shit loans and mortgages and help them out. These actions by the Fed inflated the currency, and while we haven't seen all aspects of this inflation in all products and services that does not mean inflation will not be a major problem in the future. While the housing market has seen prices decline, other markets have seen their prices rise. Precious metals such as gold and silver have seen their prices go up as people speculate that the U.S. dollar will fall in value, and as such lose its former purchasing power.
If people do not get a raise in their pay check and the purchasing power of the U.S. dollar declines, people have less money to spend even though they are receiving the same amount of dollars in their pay check. Then they have to spend $4 or more for a gallon of gasoline and they now have even less disposable income than they had when gasoline was selling for $2 a gallon. So, the amount of money you have is only a part of the equation. The important part of the equation is: how much can you buy in goods and services with the money you have?????
So, you now see that there is a connection between monetary policy and what your money will buy and how far it will go. For the last few years, I have written about the fact that monetary policy is made by the Fed for the benefit of the banks, and the banks are only part of the monetary system. We, the people are the other part of our monetary system and yet the 300 million of us that use our monetary system and its currency have no voice in how monetary policy is determined.
I believe in bank regulation by the federal government. I believe that the Glass-Steagal Act should have never been repealed. One of these days, when more people will understand money and banking, banks will be more regulated as they should be. Otherwise, we will have another financial crisis, and another economic recession, and the middle-class in the United States will become poorer and poorer as those helped by the Fed get richer and richer.
It is time for Americans to wake up and learn about their money.